Contractor Talk - Professional Construction and Remodeling Forum banner

1 - 16 of 16 Posts

·
Registered
Joined
·
13 Posts
Discussion Starter · #1 ·
I recently started a small pest control business under an LLC. Before next spring I need to make a purchase that the company itself doesn't have the money for, but I personally do. It would be paid back within the year. Is it just a matter of moving money from my personal account to business and back again later?
 

·
Particulate Filter
Joined
·
4,430 Posts
Talk to an accountant. Simply moving the money will inviolate the llc protection you worked so hard to obtain. In the event of Problem your financials will be subpoenoed (sp). Ive seen it happen.
 

·
Registered
Joined
·
271 Posts
If you are an owner/operator with a single member LLC, it is basically a sole proprietorship as far as liability goes. You did the work, you're liable. If an employee did it, then that may be a bit different. Have insurance.

I did the same thing when I started up, and since I file as basically a sole proprietor, it really makes no difference. You can transfer money or not. If it is an expense, you put it on your expenses, that's it. They don't care how it got paid for. It's basically a non-issue. Just my opinion, of course we all need a live-in tax lawyer.
 

·
Registered
Joined
·
555 Posts
We've loaned money to and from a ton. Keep everything in the books and you'll be fine. There is always loan to or loan from in our books accountant has no problem with it.
 

·
Particulate Filter
Joined
·
4,430 Posts
If you are an owner/operator with a single member LLC, it is basically a sole proprietorship as far as liability goes. You did the work, you're liable. If an employee did it, then that may be a bit different. Have insurance.

I did the same thing when I started up, and since I file as basically a sole proprietor, it really makes no difference. You can transfer money or not. If it is an expense, you put it on your expenses, that's it. They don't care how it got paid for. It's basically a non-issue. Just my opinion, of course we all need a live-in tax lawyer.
Your tax status has nothing to do with tort liability.
 

·
Registered
Joined
·
4 Posts
Another option could be to purchase the item on your personal account and then essentially sell your business that item. Send your LLC the bill and set the payment terms however it best suits the business.

I'm in no way a lawyer or an accountant and cannot tell you how that would affect your LLC protection. It may not be the best option, it's just an idea.
 

·
Registered
Joined
·
333 Posts
Do it properly and have your accountant set up a loan payment schedule with interest.

No matter how your company is set up if you are part of the daily operation of the businesses and cause harm due to negligence, wrongful conduct etc.. you will be found to be personally responsible.

A LLC one hat show is a "Managing Member"
 

·
Contributor
Joined
·
42 Posts
It is never a good idea to use personal funds for business purchases but sometimes it can not be helped so when you need to do this you have to decide whether you want the money paid back or whether you do not care if it gets paid back.

If you want it paid back then you need to have it set up as a loan, that means all of the correct paperwork just like you would if you went to a bank to get a loan. You must have the terms of the loan written out clearly such as time to payback, the monthly payment and the interest that you will charge and if a payment is late what the consequences are such as late fees, etc. If you do it as a loan then the interest is deductible but the payment is considered income to you personally so therefore it is taxable when you file your yearly personal taxes.

If you choose to make it an investment then it will not be necessary to pay it back and if you withdraw that money back out at a later time there is no tax consequences to you and there are no tax consequences to your business for the investment.

I must say that I am not a CPA or an attorney so you may want to speak with one of them for your particular situation.
 

·
Banned
Joined
·
2,247 Posts
It is fun to see all the differing opinions.

I don't see any problem at all and am not even sure I understand the question after reading the replies.

The way I see your question is; you have an LLC and you want to give it a cash infusion with personal money. If you want to put money into your LLC bank account nobody cares where the money comes from. The only important thing I see is how you enter the transaction for your accounting. When I put personal money into my business account I title the transaction as an INVESTMENT. When I take personal money from my business account that is not my normal weekly draw I call the transaction a PERSONAL WITHDRAWAL. Then, I make sure that my CPA comprehends my records because I don't want him to make a mistake and claim my personal cash infusion as INCOME in which I will end up paying taxes on the money I already paid taxes for.

It doesn't make sense to infuse your business account with personal money and then charge your business interest on the money because you will have to claim the interest you earn as a capital gain when you file your personal taxes and you will owe the IRS the money for that personal gain. All your accounting and effort to save or earn money will be a wash.

I know many business owners who go out of their way to start their own personal leasing company where that company purchases vehicles and then leases those vehicles to their real business. This does not make sense at all because while their real business pays interest to the leasing company the leasing company has to claim the interest as a capital gain. Then, the leasing company has to bare the costs for accounting, time, and labor while the real business could have bared the same costs and get the same tax reductions.

All you need to do is transfer your personal money into your business account and make sure your accountant understands that the deposit is a personal investment and not business income. When you take the money out of your business account you need to make sure your accountant records the transaction as a payment for the loan and this would simply go in the same column as a Debt, Debit, or Business Expense. It is much more simple to do accounting for taking your money back.

The only problem I see with putting personal money in a business account is the proper accounting for tax purposes. When you use the Accrual System the accounting is easier because this system takes into account existing debt that will be paid in the future, but when using the Cash System you have to be careful and make notes so the money does not get mistakenly claimed as Income. For an average person the accounting can be confusing because a simple bank statement contains only two columns for Income and Expenses, but when you put personal money in a business account you end up with a third column (I think) and you have to do accounting for Income, Expenses and Personal Investments. The third item always confuses my accounting. I use only two columns, but I make sure my accountant sees my notes.
 

·
Particulate Filter
Joined
·
4,430 Posts
Do it properly and have your accountant set up a loan payment schedule with interest.

No matter how your company is set up if you are part of the daily operation of the businesses and cause harm due to negligence, wrongful conduct etc.. you will be found to be personally responsible.

A LLC one hat show is a "Managing Member"
What does LLC stand for again?
 

·
Banned
Joined
·
2,247 Posts
What does LLC stand for again?
Limited Liability Corporation

An LLC is supposed to shield the business owner from personal liability more than other types of corporations. So, when you get sued the plaintiff is not supposed to take your house away nor assets from other businesses that you own, but you will find that the courts don't pay much attention to corporate shields and still hold the owners personally liable. Another problem with LLC's is I don't think you can get a contractor's license in California when the company is an LLC and most supply houses will not give an LLC credit. Why would they when you are advertising that you will not assume personal responsibility for your actions.
 

·
Registered
Joined
·
271 Posts
Limited Liability Corporation

An LLC is supposed to shield the business owner from personal liability more than other types of corporations. So, when you get sued the plaintiff is not supposed to take your house away nor assets from other businesses that you own, but you will find that the courts don't pay much attention to corporate shields and still hold the owners personally liable. Another problem with LLC's is I don't think you can get a contractor's license in California when the company is an LLC and most supply houses will not give an LLC credit. Why would they when you are advertising that you will not assume personal responsibility for your actions.
I think your understanding of what an Limited Liability Company is is pretty off. An LLC is a way to form a business entity that has some of the same aspects as a corporation and some of the same aspects of a sole proprietorship or partnership. One good thing is that you can file your taxes as a sole proprietorship, S corp, or C corp.

Asset protection is an altogether different matter. Yes, it does offer more protection than a sole proprietorship in some situations, like a corporation does. This is for debts the business owes, if you assume them personally, you are on the hook personally, and that's generally how it is. In matters of liability where you injure someone, you're still just as liable.

I don't see why any vendor would give credit to a corporation and not an LLC. If anything, a corporation offers better asset protection from debtors.
 

·
Registered
Joined
·
271 Posts
Sorry I got distracted and forgot to make my point. In terms of tort, your liability is spelt out by state law, that is what you should look at there. In Texas, I am below the limit, so thankfully, I guess, I don't have to worry about personal asset loss, as I don't have enough. LOL.

An LLC is treated as a flow through entity by the IRS. That's the whole key here. If you make a dollar it goes in as income on your tax return. If you lose a dollar it goes in as a loss on your tax return. Since an LLC is a flow through entity, generally also an entity disregarded as being separate from the owner as far as the IRS is concerned, it literally makes absolutely no difference on your taxes which account you pay it out of. Just do not make a habit out of it, keep business financials separate. If it is just a one time thing, no biggie. Just pay it, keep a receipt, and put it down as a business expense against your revenue. At the end of the year there is no difference if the money came from your LLC or personal checking account, it's the income or loss they care about.
 

·
Banned
Joined
·
2,247 Posts
I think your understanding of what an Limited Liability Company is is pretty off. An LLC is a way to form a business entity that has some of the same aspects as a corporation and some of the same aspects of a sole proprietorship or partnership. One good thing is that you can file your taxes as a sole proprietorship, S corp, or C corp.

Asset protection is an altogether different matter. Yes, it does offer more protection than a sole proprietorship in some situations, like a corporation does. This is for debts the business owes, if you assume them personally, you are on the hook personally, and that's generally how it is. In matters of liability where you injure someone, you're still just as liable.

I don't see why any vendor would give credit to a corporation and not an LLC. If anything, a corporation offers better asset protection from debtors.
I apologize! I never realized that LLC stands for Limited Liability Company and it is strange that whenever someone uses the word
'corporation' I never heard an accountant nor attorney correct that error.

As for some things you are correct, but the following information from Wikipedia backs my claim that it is more difficult for an LLC to get credit and one of the main reasons people form LLC's is to reduce personal liability and for asset protection. In fact, there are many advertisements for people from other states to form LLC's in Nevada and New Jersey for the sole purpose of asset protection and using the LLC for a tax pass-through is probable the worse reason because the business owner will have to pay double taxes because they will have to pay out-of-state for the LLC and taxes in their own state. I looked into forming LLC's many times and was always told to stay away from them. Also, I am positive that a high percent of businesses will not give credit to an LLC without a personal guarantee.


FROM WIKIPEDIA:

Choice of tax regime. An LLC can elect to be taxed as a sole proprietor, partnership, S corporation or C corporation (as long as they would otherwise qualify for such tax treatment), providing for a great deal of flexibility.

A limited liability company with multiple members that elects to be taxed as partnership may specially allocate the members' distributive share of income, gain, loss, deduction, or credit via the company operating agreement on a basis other than the ownership percentage of each member so long as the rules contained in Treasury Regulation (26 CFR) 1.704-1 are met. S corporations may not specially allocate profits, losses and other tax items under US tax law.

Limited liability, meaning that the owners of the LLC, called "members", are protected from some or all liability for acts and debts of the LLC depending on state shield laws.

Much less administrative paperwork and record keeping than a corporation.
Pass-through taxation (i.e., no double taxation), unless the LLC elects to be taxed as a C corporation.
Using default tax classification, profits are taxed personally at the member level, not at the LLC level.
LLCs in most states are treated as entities separate from their members. However, in some jurisdictions such as Connecticut, case law has determined that owners were not required to plead facts sufficient to pierce the corporate veil and LLC members can be personally liable for operation of the LLC (see, for example, the case of Sturm v. Harb Development, 298 Conn. 124, 2 A.3d 859 (2010), http://www.constructionrisk.com/201...e-sued-without-need-to-pierce-corporate-veil/).
LLCs in some states can be set up with just one natural person involved.
Less risk to be "stolen" by fire-sale acquisitions (more protection against "hungry" investors).
For real estate companies, each separate property can be owned by its own, individual LLC, thereby shielding not only the owners, but their other properties from cross-liability.
Disadvantages[edit]
Although there is no statutory requirement for an operating agreement in most jurisdictions, members of a multiple member LLC who operate without one may run into problems. Unlike state laws regarding stock corporations, which are very well developed and provide for a variety of governance and protective provisions for the corporation and its shareholders, most states do not dictate detailed governance and protective provisions for the members of a limited liability company. Thus, in the absence of such statutory provisions, the members of an LLC must establish governance and protective provisions pursuant to an operating agreement or similar governing document.

It may be more difficult to raise financial capital for an LLC as investors may be more comfortable investing funds in the better-understood corporate form with a view toward an eventual IPO. One possible solution may be to form a new corporation and merge into it, dissolving the LLC and converting into a corporation.
 
1 - 16 of 16 Posts
Top